Income Drop
The non-fraudulent way for a cryptocurrency exchange to make money is by charging transaction fees. The more transactions, the more fee income. Last November 1st, one week before FTX suspended withdrawals, I wrote in Greater Fool Supply-Chain Crisis:Why would retail investors buy? They are facing high inflation and a looming recession, their stock and bond portfolios are evaporating, and their cryptocurrency HODL-ings have evaporated even faster. It isn't just retail:
Meanwhile, institutional digital-asset products this month saw their lowest-ever volume in data going back to June 2020, with average daily trading volume dropping 34% to $61 million, according to CryptoCompare.
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In 2022, trading volume on centralized exchanges such as Coinbase, Kraken and Binance plunged more than 46%, according to data compiled by CryptoCompare. On Binance, which remains the leader in terms of market share, spot trading fell 45% to $5.4 trillion. And Bitcoin, the most-traded digital asset, saw trading volumes decline 31% year-on-year, the researcher said in a report.Eyeballing the graph one can estimate that centralized exchange volume is currently about 90% down from the peak around May 2021, and decentralized exchange volume is down around 90% from its peak around November 2021. This must leave exchanges desperate for non-fee income streams and thus, as Matt Levine suggested in How Not to Play the Game, tempted to
Magic Beans and Bogus Blockchains
Two recent readable summaries of investigations by @cryptohippo65 and DataFinnovation are Dirty Bubble Media's The Binance Scam Chain and Patrick Tan's Binance Built a Blockchain, Except it Didn’t. Dirty Bubble Media summarizes the results of the investigations thus:The Binance Smart Chain and BNB are cornerstones of the Binance empire. However, recent analyses have called almost every aspect of this blockchain into question. It turns out that, like many things with Binance, a closer look reveals cracks within the façade. The vast majority of BNB tokens appear to be owned directly by Binance, and market analysis suggests that the price has been artifically inflated. Billions of dollars in purported stablecoins pegged to the U.S. dollar on the BSC were not backed with real assets for weeks at a time. The code base for BSC is not open source and appears to be controlled directly by Binance employees. And most importantly, a deep dive into the Binance Smart Chain suggests that it might not function like a blockchain at all…
Magic Beans
FTX imploded in part because much of their reserves consisted on FTT, a token they created. FTX held the vast majority of FTT, and controlled much of the trading in it. This allowed them to manipulate the "price" of FTT and thus the "value" of their reserves of these magic beans. All appeared well, but the "price" of FTT didn't reflect what it could be sold for once it was pointed out that it was a magic bean.Similarly, Dirty Bubble Media writes:
BNB is the fifth-largest cryptocurrency with a market cap of $42 billion. Based on Binance’s own public records, they directly own between 70-80% of the total BNB. The blockchain analyst @cryptohippo65 examined Binance’s proof of reserves information to determine the allocation of BNB across both Ethereum and Binance blockchains. Cryptohippo65 discovered that the vast majority of BNB on Ethereum and the BSC were likely attributable to customer holdings. This accounted for around 15% of the circulating supplyHow liquid is BNB?:
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However, nearly all of the BNB on the “governance” chain for the Binance blockchain, called the Beacon chain, appears to be owned directly by Binance. This can be determined by a simple process of elimination: Binance does not include these addresses in their customer proof of reserves address list, yet they clearly control these addresses.
This means that Binance is holding somewhere between $28-32 billion worth of BNB on its balance sheet. Yet BNB’s price is not determined independently of Binance itself, as Binance (unsurprisingly) hosts the largest trading pairs for BNB.
Based on data from the last 30 days, the ratio of daily spot trading volume to market cap for BNB was roughly 1%. This is significantly lower than the average ratio for Bitcoin (5.4%) or Ether (3.0%), indicating that BNB liquidity is markedly lower than other major cryptocurrencies. The true BNB volume is likely much lower since a large fraction of this alleged volume is reported by highly questionable microexchanges.Is there any sign that BNB was pumped the way FTT was? This is where Binance's allegedly "fully backed" metastablecoin BUSD comes in. It is deliberately confusing, because it exists on multiple blockchains. The basis for BUSD is BUSD-on-Ethereum, credibly backed 1-for-1 because it is run by Paxos, not Binance, and Ethereum is a credible blockchain. Binance runs a bridge from BUSD-on-Ethereum to BUSD on multiple Binance operated blockchains. The claim is that a peg-BUSD on these blockchains is matched exactly by a BUSD locked on the Ethereum blockchain.
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DataFinnovation went back in history to examine these peg-BUSD tokens. When he tried to match the number of pegged tokens to the Ethereum BUSD held in reserve, DataFinnovation discovered that the Binance backing wallet frequently ran at a large deficit for weeks at a timeDataFinnovation writes:
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In other words, Binance had printed dollar equivalents from thin air. As DF notes, at a minimum this suggests incredible disorganization at Binance. DF also noted something interesting: the periods where pegged BUSD was unbacked correlated neatly with periods of time when BNB prices skyrocketed. It is almost as if Binance needed the money to raise the price of BNB…
The run up in price begins exactly when the dramatic unbacked printing starts. Similarly the price stops rising, and then retraces a bit, when the printing stops.
This does not prove anything of course. Doubly so as the BUSD are eventually backed by ERC20 tokens in the peg wallet. But it is suspicious and indicates that pumping of BNB with unbacked BUSD might have occured. At best — at absolute best — Binance was careless during this time as the tick marks on the horizontal axis are almost 7ish weeks apart.
Further this activity occurred nearly 2 years ago in a major stablecoin, branded by the largest exchange, on a major chain. There is surely a lot still to be discovered.
Bogus Blockchains
Maybe I'm naive, but I would think that if the two blockchains and the bridge were correctly implemented it would not be possible to mint unbacked peg-BUSD.We can assume that Ethereum is correctly implemented, and as far as I know no-one has claimed that the part of the bridge that runs on Ethereum isn't. We don't know about the other part of the bridge. But thanks to research by DataFinnovation acting on a tip from @cryptohippo65 we do know that the Binance Smart Chain is not what anyone should call a blockchain. DataFinnovation documented the research in this Twitter thread and explained it in BNB Beacon Chain: Not A Blockchain?. Patrick Tan provides a summary:
DataFinnovation went ahead to try and sync [the blockchain] from the genesis block, and generated the following error:There are a lot more suspicious aspects to the Binance Chain. Among DataFinnovation's discoveries were not just that the hashes verifying the "blockchain" are routinely rewritten to alter history, but also that:
panic: Failed to process committed block (285075852:2BDC391C402FF452B83AD484D5C40DA615133C25E60C07352CBC6E45435EA873): Wrong Block.Header.AppHash. Expected 3E60F1573122DC7FAD2C5E4779A21BFEEB578422C915A16DEA70A1A617314720, got 1EDDADB1DC0B8E67A3F10FCE05201A4A59A7C380EC54F3CA83D400317CC49685...
DataFinnovation goes further to identify where the exact failure to sync can be found, and it’s here and after several attempts, found that the Binance Chain regularly breaks at these timestamps.
Coincidentally, Binance, the centralized cryptocurrency exchange resets its price candles at the same time everyday.
Nonetheless, what DataFinnovation has discovered is that the Binance Chain breaks every 24 hours, without fail, yet somehow the blockchain still runs and validators somehow push past the previous breaks
- Balances in wallets change with no corresponding transactions on the chain.
- The two blockchain implentations were forked from the originals (geth and Cosmos) in ways that make identifying differences difficult.
- Important parts of the implementations are not open-source.
- Parts of the systems are distributed as byte-code.
- Non-Binance nodes have to run from binary distributions, not source.
- The binaries for the test nets and the production nets are different.
- When questioned via Twitter, the "Binance Chain Chief Scientist" stopped responding.
While there have been no allegations against Binance for any form of wrongdoing with respect to its blockchains, that it was potentially issuing an unbacked dollar stablecoin and possibly engaging in pump and dump activities may raise the ire of law enforcement agencies in the U.S. who have had their targets set on the cryptocurrency exchange since 2018 for alleged money laundering and evasion of sanctions.And so does Dirty Bubble Media:
The value of BNB is, in theory, derived from its use case as the “stock” of the Binance blockchain. We showed above that, like FTT or CEL, BNB ownership is highly concentrated in the hands of Binance itself. In yet another flywheel scheme, Binance appears to have spun up tens of billions of dollars in free assets on paper. We don’t know if Binance has leveraged these tokens; their CEO insists that Binance has no loans. Regardless, it’s clear that the BNB held on Binance’s books are worth far less than what current market prices suggest.My assessment is that the risk level of Binance is rapidly increasing, and that there are more revelations to come.
As we have demonstrated, there is substantial evidence that there are major problems with the Binance Smart Chains as well. These include hypercentralization of chain governance in the hands of Binance, periodically unbacked stablecoins, and a closed-end project under the control of a shadow group tied to Binance. Most importantly, DataFinnovation’s analyses suggest that the BSC does not operate like a proper blockchain.
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Emily Nicolle and Muyao Shen report on the response to DataFinnovation's work in Binance Acknowledges Past Flaws in Maintaining Stablecoin Peg Reserve:
"Binance signaled that the “peg,” referring to the amount of BUSD locked as collateral to support its own token, had frayed in the past but is now intact.
“The process of maintaining the backing involves many teams and has not always been flawless, which may have resulted in operational delays in the past,” a Binance spokesperson said in an email to Bloomberg News. “Recently, the process has been much improved with enhanced discrepancy checks to ensure it’s always backed 1-1.”
Binance-peg BUSD is currently fully backed and there was no impact on Paxos’s BUSD, the spokesperson added. “Despite variances in the data, at no point were redemptions impacted for users,” they said, without specifying how long Binance-peg BUSD was undercollateralized for, or when the exchange noticed and fixed the issue."
There are three glaring omissions from this article:
1) There is nothing about why BUSD was undercollateralized and the correlation between those times and huge "price" spikes in BNB.
2) The article doesn't question the implication in Binance's statement that the process of minting peg-BUSD isn't automated by a "smart contract", it "involves many teams" of humans.
3) There is nothing about the revelation that the blockchain underlying the vast majority of BUSD is bogus because its history is routinely rewritten.
In the post I wrote:
"Maybe I'm naive, but I would think that if the two blockchains and the bridge were correctly implemented it would not be possible to mint unbacked peg-BUSD"
And in the previous comment I wrote:
"The article doesn't question the implication in Binance's statement that the process of minting peg-BUSD isn't automated by a "smart contract", it "involves many teams" of humans."
I should have put these two together. If Binance had proper automated bridges minting $1B to pump BNB would have required fiddling with the code in the way FTX had backdoors for Alameda. Much better to have manual processes so that the $1B can be blamed on a mistake by some peon in accounting who can be the scapegoat. Not the equivalent of FTX's Gary Wang.
Similarly, one can ask why Binance has a bogus blockchain. If you're going to take the risk of running a major money laundering operation you want to avoid having an auditable blockchain recording what you're doing. There's no way the changes they made to geth and Cosmos were accidental - they needed to break the ability of outsiders to audit the transaction history, and maybe to find ways to skim more of the money transiting the laundry.
David Pan reports that Binance Says Signature Sets Transaction Minimum Amid Pullback:
"Binance, the world’s largest cryptocurrency exchange, said Signature Bank will only handle user transactions of more than $100,000 as the bank decreases its exposure to digital-asset markets.
“One of our fiat banking partners, Signature Bank, has advised that it will no longer support any of its crypto exchange customers with buying and selling amounts of less than 100,000 USD as of February 1, 2023. This is the case for all of their crypto exchange clients. As a result, some individual users may not be able to use SWIFT bank transfers to buy or sell crypto with/for USD for amounts less than 100,000 USD,” Binance said in a statement sent to Bloomberg News on Saturday."
Patrick McKenzie suggests an explanation:
"I would assume that $100k is the threshold where a bank might choose to identify in its AML policy that any wires above will undergo secondary screening (sometimes called “enhanced due diligence”) *at the bank.*
And below that the bank might have made a risk-based calculation that routine retail use of a crypto exchange could rely on the exchange’s or sending bank’s AML/KYC policies."
No bank can credibly rely on Binance's AML/KYC policies.
Last April Angus Berwick and Tom Wilson reported on How crypto giant Binance built ties to a Russian FSB-linked agency:
"In April 2021, Russia's financial intelligence unit met in Moscow with the regional head of Binance, the world's largest crypto exchange. The Russians wanted Binance to agree to hand over client data, including names and addresses, to help them fight crime, according to text messages the company official sent to a business associate.
At the time, the agency, known as Rosfinmonitoring or Rosfin, was seeking to trace millions of dollars in bitcoin raised by jailed Russian opposition leader Alexei Navalny, a person familiar with the matter said. Navalny, whose network Rosfinmonitoring added that month to a list of terrorist organisations, said the donations were used to finance efforts to expose corruption inside President Vladimir Putin's government."
Emily Nicolle reports that Binance Acknowledges Storing User Funds With Collateral in Error:
"Binance Holdings Ltd., the world’s largest crypto platform, acknowledged that it mistakenly keeps collateral for some of the tokens it issues in the same wallet as exchange-customer funds.
Reserves for almost half of the 94 coins that Binance issues, known as Binance-peg tokens or “B-Tokens,” are currently stored in a single wallet called “Binance 8” which also holds customer assets, according to listings visible on its website on Monday. The wallet contains significantly more tokens in reserve than would be required for the amount of B-Tokens that Binance has issued, indicating that collateral is being mixed with customers’ coins rather than being stored separately, as has been done for other Binance-peg tokens according to the company’s own guidelines.'
I'm sure this is an innocent mistake not an indication that Binance's operations are as screwed up as FTX's were.
Yueqi Yang's Binance Plans to Suspend US Dollar Transfers Using Bank Accounts shows that the regulatory screws are tightening:
"Binance, the world’s largest cryptocurrency exchange, said it’s temporarily suspending deposits and withdrawals of US dollars using bank accounts, and will work to restart the service soon.
The suspension will start Wednesday, according to a Binance spokesperson. No reason was given for the suspension. Bank transfers using other fiat currencies, such as euros, are unaffected, the representative said."
But Amy Castor and David Gerard report that Binance's banking troubles aren't just in the US:
"In the UK, the Binance crypto exchange should have no access to pounds, ever. After the Financial Conduct Authority warned in March 2022 that “in the FCA’s view, Binance Markets is not capable of being effectively supervised,” UK banks cut off direct deposit to Binance immediately. [FCA, 2022]
But Binance knows you can’t keep a dedicated gambling addict down, so they keep trying to weasel their way back into the UK’s Faster Payments network, most recently through payments processor Paysafe. Sometimes this works. Binance recommends UK customers send money in and out via Visa — but even that’s being cut off by the banks.
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In the UK, the Binance crypto exchange should have no access to pounds, ever. After the Financial Conduct Authority warned in March 2022 that “in the FCA’s view, Binance Markets is not capable of being effectively supervised,” UK banks cut off direct deposit to Binance immediately.
But Binance knows you can’t keep a dedicated gambling addict down, so they keep trying to weasel their way back into the UK’s Faster Payments network, most recently through payments processor Paysafe. Sometimes this works. Binance recommends UK customers send money in and out via Visa — but even that’s being cut off by the banks.
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Australian users also report payment issues with Binance — even via Visa."
But they note:
"When Bitfinex was cut off from banking in 2017, users would buy bitcoins just to get their funds out of the exchange. This drove the price of bitcoin up and may have helped trigger the 2017 crypto bubble. So all of this is good news for bitcoin!"
Nikhilesh De reports that Stablecoin Issuer Paxos Is Being Investigated by New York Regulator:
"The New York Department of Financial Services (NYDFS) is investigating stablecoin issuer Paxos, CoinDesk has learned.
The full scope of the investigation is unclear. Paxos’ stablecoins include the Pax dollar (USDP) and Binance USD (BUSD), a Binance-branded stablecoin offered through a white-label service.
A NYDFS spokesperson said the agency could not comment on ongoing investigations.
Paxos has been in the news recently over rumors the U.S. Office of the Comptroller of the Currency – a federal bank regulator – may ask it to withdraw its application for a full banking charter. Paxos has denied these rumors.
However, an ongoing investigation by a state regulator suggests the company, which received a provisional bank charter from the OCC in 2021, is indeed under closer scrutiny than its peers may be."
It has been obvious that staking satisfies the Howey test and thus is a security. Now, Gensler's SEC has made that point again. Nikhilesh De reports that Kraken Agreed to Shutter US Crypto-Staking Operations to Settle SEC Charges: Source:
"Kraken has agreed to shut its cryptocurrency-staking operations to settle charges with the U.S. Securities and Exchange Commission (SEC), according to an industry source briefed on the matter.
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The SEC confirmed Kraken would shut down its staking services for U.S. customers after the publication of this article."
Emily Nicolle reports that A $92 Billion Crypto Profit Maker Is in Line for a Shake-Up:
"The US Securities and Exchange Commission on Thursday signaled a crackdown on platforms offering rewards to their customers via a process called staking, as it reached a settlement with trading platform Kraken for $30 million and won agreement from the exchange to shut down those offerings domestically. It’s possible other providers such as larger rival exchange Coinbase Global Inc. may feel the heat and follow suit in discontinuing their own staking services, experts said — or move them offshore."
Yueqi Yang, Katanga Johnson and Austin Weinstein report on the gradual crypto crackdown in US Crackdown Seeks to Push Crypto Back to the Fringes of Finance:
"The increasingly aggressive posture, which has taken shape through public and private actions in the weeks since the collapse of crypto exchange FTX, could push the industry to the fringes of finance. It means new ventures may be smothered before they get off the ground, and banks and digital-asset companies are likely to scrap existing ones and upend business models.
“The regulators are effectively building a wall between crypto trading and the banking and the securities markets to prevent the types of systemic vulnerabilities that led to the 2008 financial crisis,” said Todd Baker, senior fellow at Columbia University’s Richman Center for Business, Law & Public Policy."
Frances Coppola's Binance and its stablecoins is a must-read examination of the enforcement actions by the New York Dept. of Financial Services and the SEC against Paxos for its BUSD stablecoin and its relationship to Binance. Coppola sees four possible theories:
1) "the fact that BUSD is a listed asset in Binance's Earn program" triggering the Howey test.
2) "Paxos earns a return on the assets that back Paxos BUSD, and remits part of this to Binance" triggering the Howey test because "Binance is Paxos's customer".
, it could perhaps be argued that Binance has a reasonable expectation of profiting from its investment in Paxos BUSD.
3) "it's possible that the SEC regards Paxos BUSD as a note which has characteristics of a security. If this is the case, then the Reves test, not the Howey test, is the right one to use."
4) "it's possible that because of the nature of the assets backing Paxos BUSD, the SEC regards it as a money market mutual fund"
Coppola concludes:
"If the SEC successfully argues in court that Paxos BUSD is a money market mutual fund or some other kind of investment fund because of the nature of the backing assets, then the logical next step would be to class all securities-backed stablecoins as MMMFs or other investment funds, consistent with Jay Clayton's definition.
And if the SEC convinces a court that Paxos BUSD is a note with security-like characteristics, then not only other stablecoins, but things like DeFi staking** could potentially be classed as securities. This would have profound and long-lasting ramifications for the entire crypto ecosystem."
Krisztian Sandor's Binance Withdrawals Surge as Paxos-BUSD Drama Weighs on the Exchange notes more trouble for Binance:
"Binance, the world’s largest crypto exchange by trading volume, has endured some $831 million of net outflows in the past 24 hours, according to blockchain intelligence firm Nansen’s data. Investors appear to be spooked by a regulatory crackdown on the Paxos-issued Binance USD (BUSD) stablecoin and so are reducing their holdings on the platform.
Blockchain data on Nansen shows users withdrew some $2.8 billion of digital assets in the last 24 hours, outweighing the $2 billion of deposits during the same period."
Dirty Bubble Media's Stablecoin Shadow Banks is a lucid explanation of why the Federal Reserve is turning the screws on stablecoins:
"he Board generally believes that issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices. The Board believes such tokens raise concerns related to operational, cybersecurity, and run risks, and may also present significant illicit finance risks, because—depending on their design—such tokens could circulate continuously, quickly, pseudonymously, and indefinitely among parties unknown to the issuing bank. Importantly, the Board believes such risks are pronounced where the issuing bank does not have the capability to obtain and verify the identity of all transacting parties, including for those using unhosted wallets."
Dirty Bubble Media provides examples in which USDC, generally regarded as the safest and most transparent stablecoin, is "used by questionable characters to move billions of dollars internationally", has "facilitated fraud", and acts "as a shadow bank for other crypto firms". All of which are specifically called out in the Fed's statement.
Another turn of the SEC's screw in SEC Sues Over TerraUSD Stablecoin That Rocked Crypto by Allyson Versprille, Austin Weinstein and Muyao Shen:
"The SEC alleged in federal court on Thursday that Terraform Labs, the company behind the token, and its co-founder Do Kwon offered and sold unregistered securities and carried out a fraudulent scheme that wiped out at least $40 billion worth of market value, including serious losses for both retail and institutional investors."
Is the message becoming clear?
Angus berwick and Tom Wilson are back with Crypto giant Binance moved $400 million from U.S. partner to firm managed by CEO Zhao:
"Global cryptocurrency exchange Binance had secret access to a bank account belonging to its purportedly independent U.S. partner and transferred large sums of money from the account to a trading firm managed by Binance CEO Changpeng Zhao, banking records and company messages show.
Over the first three months of 2021, more than $400 million flowed from the Binance.US account at California-based Silvergate Bank to this trading firm, Merit Peak Ltd, according to records for the quarter, which were reviewed by Reuters. The Binance.US account was registered under the name of BAM Trading, the U.S. exchange's operating company, according to the records. Company messages show the transfers to Merit Peak began in late 2020."
And:
"Binance.US's executives were concerned by the outflows because the transfers were taking place without their knowledge, according to messages reviewed by Reuters. The CEO of Binance.US at the time, Catherine Coley, wrote to a Binance finance executive in late 2020 asking for an explanation for the transfers, calling them "unexpected" and saying "no one mentioned them."
"Where are those funds coming from?" she wrote in one message."
It looks like they were right that Binance.US was simply a front.
David Gerard and Amy Castor explain the recent BTC pump:
"Paxos is shutting down BUSD. Now it has to allow for orderly redemptions of its ... $13.3 billion stablecoin. This is creating fresh problems.
Paxos will only redeem the official Ethereum BUSD token. If you have a wrapped BUSD issued by Binance, those are not redeemable.
If you do have Paxos-issued BUSD and can’t pass know-your-customer checks, you can’t redeem them either.
Customers who can’t redeem their Binance BUSD are using them to buy bitcoins or tethers, or whatever liquid coin they can get their hands on. This is why bitcoin is pumping again and is now bouncing around the $24,000 range."
David Z. Morris' Binance Can’t Keep Its Story Straight on Misplaced $1.8B USDC is a detailed update on the evolving story of Binance's sketchy behavior:
"A new and detailed investigation by Forbes has raised significant questions about the management and custody of customer assets and stablecoin collateral by Binance. There are many possible explanations for the nature and intent of certain on-chain transactions highlighted by Forbes, and they could be entirely innocuous. But Binance’s so far confused and sometimes contradictory responses to the findings do not inspire confidence, particularly in a post-FTX era of rightfully widespread suspicion of centralized custodians with off-chain balance sheets."
And:
"The least charitable interpretation of the Forbes findings, articulated as a hypothetical by Lumida CEO and co-founder Ram Ahluwalia on CoinDesk’s “First Mover” program Tuesday, is that Binance was engaged in some form of rehypothecation. That is, that the funds backing b-USDC were loaned to counterparties or otherwise put at risk. Based on this possibility, Forbes has compared its findings to the bad practices that led to the collapse of FTX.
This was broadly the claim made by research firm ChainArgos in a Jan. 2 report that first drew attention to the unusual activity. “Someone received a loan of something like $1 billion for about 100 days,” ChainArgos claimed."
CZ dismissing this as FUD doesn't help.
Olga Kharif's Binance Is a ‘Hotbed’ of Illegal Activity, Bipartisan US Senators Allege starts:
"US Senators representing both Democrats and Republicans are demanding that Binance and Binance.US provide a detailed accounting of their finances and efforts to maintain regulatory compliance, according to a letter signed by Senators Elizabeth Warren, Chris Van Hollen and Roger Marshall.
“[What] little information about Binance’s finances is available to the public suggests that the exchange is a hotbed of illegal financial activity that has facilitated over $10 billion in payments to criminals and sanctions evaders,” the senators wrote in the letter, which was dated March 1."
The Forbes expose by Javier Paz and Steven Erlich is Binance’s Asset Shuffling Eerily Similar To Maneuvers By FTX and it certainly looks very suspicious - for example:
"The implication of Hillmann’s comments is that despite what balances may show in Binance’s publicly viewable exchange wallets, the firm has its own set of proprietary records to keep track of funds. This would seem to undermine Binance’s recent efforts to demonstrate solvency through proof-of-reserves exercises. Having two sets of books means that the company is asking customers and regulators to trust its accounting while making it very difficult to independently verify the solvency it claims."
Most people don't understand that the cryptocurrency market mostly doesn't trade cryptocurrencies, it trades derivatives based on the much smaller, easily manipulated spot market. And the vast majority of those trades happen on Binance. Muyao Shen's Crypto Exchanges Are Now Eyeing Derivatives After FTX’s Collapse shows that:
"Derivatives account for more than 60% of the total overall trading volumes, including spot, across crypto exchanges since January 2022, according to data compiled by CryptoCompare.
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Some offshore derivatives exchanges offer a maximum leverage of 100 times for some cryptocurrencies, even after Binance, for example, said that it was reducing the maximum leverage a user can take to trade futures contracts to 20 times from 100 times."
Binance and Its CEO Sued by CFTC Over US Regulatory Violations by Allyson Versprille, Lydia Beyoud, Tom Schoenberg and Ava Benny-Morrison reports that:
"The Commodity Futures Trading Commission alleged in federal court in Chicago that Binance and its CEO, who is known as CZ, routinely broke American derivatives rules as the firm grew to be the world’s largest trading platform. Binance should have registered with the agency years ago and continues to violate the CFTC’s rules, according to the regulator.
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The agency said that Zhao, Lim, other senior managers failed to properly supervise Binance’s activities and took steps to violate US laws, including instructing American customers to use virtual private networks, or VPNs, to obscure their location and directing “VIP customers” with US ties — often institutional market participants — to open Binance accounts under the name of shell companies."
Matt Levine's take on The CFTC Comes for Binance is a must-read all the way to the part at the end that isn't about Binance but instead J.P. Morgan and steel-toed boots. Levine starts:
"A decent rule of thumb is that all cryptocurrency exchanges are doing crimes, and if you’re lucky your exchange is doing only process crimes. Today the US Commodity Futures Trading Commission sued Binance Holdings Ltd., Changpeng Zhao’s big crypto derivatives exchange, for letting Americans trade crypto derivatives. There are no accusations that Binance is stealing customer money, or even taking big risks with it, which makes Binance look better than some other crypto exchanges I could name. There are … look, there are not no accusations that Binance is laundering money for terrorists or secretly trading against its customers, but there are relatively few accusations like that; again, as crypto exchanges go, that’s pretty good."
Sidhartha Shukla reports that Binance Woes Pile Up as Market Share Dives After No-Fees End:
"Binance’s share of all spot trading shrank to 58.8% as of March 26 from 65% a week earlier, according to data from researcher Kaiko, after it ended a zero-fee campaign for trading in Bitcoin cryptocurrency pairs. That means the exchange has given back nearly half of the market share gains Kaiko estimates it had reaped since starting the campaign in July."
From the "well, duh!" department comes Austin Weinstein's Binance Crackdown Threatens US Trading Firms, Spooks Market:
"The Commodity Futures Trading Commission’s scrutiny of arrangements that three trading firms had with the exchange has already sent chills across an industry, which relies on US licenses to make markets for securities. The firms weren’t identified in the CFTC’s lawsuit.
The stakes are particularly high for American trading firms because even as many have dabbled in crypto, equities and other more traditional assets remain their bread and butter. A serious regulatory misstep could have repercussions on their broader ability to conduct business."
The CFTC complaint reveals that at least these three US firms were doing things such as using VPNs, offshore brokers, and "non-US KYC" which should have raised red flags. They were dealing with an exchange that was notorious for evading regulation. They can't claim ignorance, and now risk losing their license to operate in the US.
Katherine Doherty and Yueqi Yang reports that Jane Street, Jump Pull Back Crypto Trading Over US Regulatory Uncertainty:
"Jane Street Group and Jump Crypto — two of the world’s top market-making firms — are pulling back from trading digital assets in the US as regulators crack down on the industry.
Jane Street is going even further by scaling back its crypto ambitions globally because regulatory uncertainty has made it difficult for the firm to operate the business in a way that meets internal standards, according to a person familiar with the matter."
This might have something to do with:
"Jane Street was also among the three US quant-trading firms cited anonymously by the Commodity Futures Trading Commission in its lawsuit against Binance Holdings Ltd. as examples of how US-headquartered clients were able to access the platform despite Binance’s promises to exclude them."
Amy Castor and David Gerard note that this is good news for Binance:
"Market makers are leaving Binance US. Jane Street Group in New York and Jump Trading in Chicago — two of the world’s top commodities market makers — are pulling back from crypto in the US as regulators crack down on the industry. Their business in normal commodities is much larger, and they could do without the regulatory heat."
More good news for Bitcoin in Yueqi Yang's Crypto Trading Takes a ‘Few Steps Back’ After Jane Street, Jump Retreat:
"First the crypto lenders imploded, then the industry’s second-largest exchange collapsed. Next to go were the crypto-friendly banks. In the latest blow, major trading firms — the players responsible for the market’s plumbing — are now retrenching.
As Jane Street Group, Jump Trading and other major firms pull back from crypto trading in the US amid heightened regulatory scrutiny, the market is quickly becoming less liquid, less mainstream and less attractive to institutional investors."
Angus Berwick and Tom Wilson are back with Crypto giant Binance commingled customer funds and company revenue, former insiders say:
"The world’s largest cryptocurrency exchange, Binance, commingled customer funds with company revenue in 2020 and 2021, in breach of U.S. financial rules that require customer money to be kept separate, three sources familiar with the matter told Reuters.
One of the sources, a person with direct knowledge of Binance’s group finances, said the sums ran into billions of dollars and commingling happened almost daily in accounts the exchange held at U.S. lender Silvergate Bank. Reuters couldn’t independently verify the figures or the frequency. But the news agency reviewed a bank record showing that on Feb. 10, 2021, Binance mixed $20 million from a corporate account with $15 million from an account that received customer money."
The article is long and detailed.
Molly White reports that Binance reportedly begins layoffs:
"Crypto giant Binance has reportedly begun layoffs, according to independent crypto reporter Colin Wu, who cited several anonymous sources. The layoffs will amount to around 20% of Binance's 8,000-person workforce, said Wu"
Binance Discloses Investigation by Canadian Securities Regulator by Emily Nicolle starts:
"Crypto exchange Binance Holdings Ltd. said it has received an order from one of Canada’s securities regulators to investigate whether the platform attempted to find a way around local regulations and compliance controls while seeking approvals in the country.
The Ontario Securities Commission served the world’s largest digital asset exchange with an investigation order on May 10, the platform said in a filing this month with the Capital Markets Tribunal. Two days later, Binance announced it would be withdrawing from the market, citing new regulatory guidance related to stablecoins and investor limits."
Oluwapelumi Adejumo reports that Binance delists privacy coins for European users amid layoff rumors:
"Binance said it would delist privacy coins for users in unnamed jurisdictions from June 26, according to an emailed statement to CryptoSlate."
...
A spokesperson for the crypto exchange told CryptoSlate that the exchange’s decision complied with “local laws and regulations regarding the trading of privacy coin.” It added that the decision was made “to ensure we can continue serving as many users as possible.”
On May 16, the European Union unanimously passed its landmark crypto legislation, Markets in Crypto Assets (MiCA). In November 2022, Coindesk reported that the bill could ban crypto service providers from dealing in privacy-enhancing coins."
Matthew Goldstein and Emily Flitter report that S.E.C. Accuses Binance of Mishandling Funds and Lying to Regulators:
"The Securities and Exchange Commission has accused Binance, the world’s largest cryptocurrency exchange, of mishandling customer funds as well as lying to regulators and investors about its operations in a sweeping case filed in federal court on Monday.
The Wall Street regulator said Binance had been mixing “billions of dollars” in customer funds and secretly sending them to a separate company controlled by Binance’s founder, Changpeng Zhao.
The charges included misleading investors about the adequacy of its systems to detect and control manipulative trading. Regulators also said Binance did not take sufficient steps to restrict U.S. investors from accessing Binance’s unregulated exchange."
Emily Nicolle dives into the details in Inside the SEC’s Allegations Against Binance and CZ:
"From at least September 2019 until June 2022, a Swiss-incorporated trading firm owned by Binance founder Changpeng ‘CZ’ Zhao called Sigma Chain allegedly engaged in “wash trading,” making it seem like many more tokens were changing hands on Binance.US than actually were."
And:
"Several cryptocurrencies that trade on Binance’s platforms were identified by the watchdog as unregistered securities. Binance’s own tokens BUSD — issued by Paxos Trust Co. — and BNB were named in the complaint as examples of the company’s unregistered activity, as well as its interest-earning product BNB Vault and staking service Simple Earn.
The list of tokens at hand includes Solana’s SOL, ... Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL and Algorand’s ALGO. Animoca Brands, a major web3 investor, saw two of its affiliated projects’ tokens affected in The Sandbox’s SAND and Decentraland’s MANA. The allegations that these tokens were offered and sold as securities could have wide implications for other exchanges that offer them in the US."
It isn't just Binance, as Austin Weinstein reports in Coinbase Sued by SEC for Breaking US Securities Rules:
"The Securities and Exchange Commission sued Coinbase Global Inc. in federal court in New York on Tuesday, alleging the crypto firm for years broke its rules.
The regulator said in a 101-page complaint that Coinbase, the largest US crypto platform, evaded regulations by letting users trade numerous crypto tokens that were actually unregistered securities. Coinbase fell 15% to $50 at 8:52 a.m. in New York.
The move comes the day after the SEC sued Binance, the world’s largest crypto platform, for a wider set of violations as part of a growing crackdown that could push digital currencies back to the fringes of the US financial system."
Regulatory clarity is breaking out all over.
In Binance Looks Like FTX but Worse, Nitish Pahwa provides a comprehensible overview of the SEC's allegations:
"Binance has faced international lawsuits and probes many times before, and in March, the supposedly more crypto-friendly Commodities and Futures Trading Commission filed a civil lawsuit against it for allegedly flouting market-manipulation and money-laundering laws. Still, the new SEC charges are a big, big deal. Not only because they portend a showdown in federal court against the world’s largest crypto exchange—but because of what they portend for the future of crypto regulation, and because they make a strong case that Binance wasn’t so different from the industry competitors it previousy condemned as crooks and scammers."
Bryce Elder's In light of SEC suing Coinbase and Binance, some memorable crypto press releases is one for the ages. It is a long list of extracts from press releases touting shitcoins that the SEC now claims are unregistered securities from, among others, HSBC, A16Z, Ernst & Young, and Samsung.
In Binance Money Trail Reveals $70 Billion Flowing Through Silvergate, Signature Olga Kharif and Yueqi Yang report on an SEC filing:
"Crypto exchange Binance and related entities shuttled some $70 billion through accounts at now-defunct Silvergate Bank and Signature Bank from 2019 up until this year, including “large amounts of money” flowing in and out within days, according to new details revealed in a filing Wednesday.
Silvergate facilitated more than $50 billion in deposits for Binance-related parties, while Signature handled more than $19 billion, the 27-page document, which was filed Wednesday in US District Court in Washington, shows. Some of the funds flowed out to foreign entities, according to the filing, which cited a review of financial records including bank statements, deposits, canceled checks and wire transfers."
In Nigeria’s SEC Says Binance Operations in Country Are ‘Illegal’ Anthony Osae-Brown reports that:
"Nigeria’s Securities and Exchange Commission declared the operations of digital-assets exchange Binance Holdings Ltd. illegal in the West African nation, days after the US SEC launched lawsuits against the firm.
Binance Nigeria Limited, the unit of the cryptocurrency platform in Africa’s biggest economy, is neither registered nor regulated by the commission and its operations are therefore “illegal,” the SEC said in a statement posted on its website late Friday. “Any member of the investing public dealing with the entity is doing so at his or her own risk,” the commission warned."
In Crypto Weekend Slump Compounds Jitters of Investors Already on Edge Sunil Jagtiani, Emily Nicolle and Yueqi Yang report on fallout from the SEC's suits:
"Altcoins including Cardano’s ADA tumbled as much as 25% on Saturday before paring a sliver of the decline, while tokens including Solana’s SOL, Polygon’s MATIC and Avalanche’s AVAX posted double-digit percentage drops. Bitcoin, the largest digital asset, was down almost 3% as of 4:15 p.m. in New York. Second-ranked Ether earlier shed more than 6% to hit its lowest level since late March.
The crypto market is notorious for big swings during weekends, when activity is typically thinner and even small trades can make an impact.
...
Further speculation of selling pressure around Robinhood Markets Inc.’s decision Friday to drop certain altcoins from its platform also fed the negative sentiment."
Two headlines this morning - Crypto Exchange Binance Probed by France for Alleged Illegal Practices and Binance Exits Netherlands After Failed Registration Attempt.
Molly White reports that Binance cancels registration in the United Kingdom:
"Binance's footprint is shrinking even further, as the company has canceled its registration with the United Kingdom's Financial Conduct Authority (FCA). This means that the company will not be able to perform any regulated activities in the country."
Molly White reports that Binance ordered to halt operations in Belgium:
"Belgium's Financial Services and Markets Authority alleged on June 2023 is violating prohibitions against "offering and providing exchange services in Belgium between virtual currencies and legal currencies, as well as custody wallet services, from countries that are not members of the European Economic Area". The regulator ordered Binance to immediately stop providing "any and all such services" in the country."
Olga Kharif and Emily Nicolle report on Binance Dropped by Paysafe for Euro Deposits and Withdrawals:
"Binance Holdings Ltd. will lose access to euro-denominated bank transfers to and from its cryptocurrency exchange via banking partner Paysafe Ltd., the latest in a recent string of blows to its business in Europe.
Paysafe will no longer support bank transfers of euros to and from Binance via the Single Euro Payments Area network from Sept. 25, according to a spokesperson for the world’s largest crypto exchange."
Amy Bainbridge and Sunil Jagtiani re[port that Binance Australia Offices Searched by Regulator as Part of Derivatives Probe:
"Binance’s offices in Australia were searched by the country’s financial markets regulator as governments around the world turn up the heat on the biggest cryptocurrency exchange.
The Australian Securities and Investments Commission conducted searches at several Binance Australia locations on Tuesday, people with knowledge of the matter said, asking not to be identified discussing private information. The action was part of an investigation into its now-defunct local derivatives business, according to the people.
...
The platform’s global share of crypto spot trading fell for a fourth consecutive month in June, reaching a 10-month low of 42%, according to a report from CCData on Wednesday. Binance’s derivatives market share also dropped."
In Binance Key Executives, Many US Employees Leave Crypto Exchange Amid Crackdown Olga Kharif and Muyao Shen report that:
"Patrick Hillmann, chief strategy officer at the company since late 2021, is leaving, he confirmed on Twitter, saying he was “doing so on good terms.” Steven Christie, senior vice president for compliance, and Hon Ng, Binance’s general counsel, have also left, a person familiar with the matter said. Eleanor Hughes, currently Binance’s head of legal for APAC and MENA, will become the new general counsel, said the the person, who asked not to be named discussing private information. Noah Perlman, who joined Binance in February from Gemini Trust Co. to be chief compliance officer, remains at the company.
Binance employed nearly 600 employees in the US, according to LinkedIn. During midyear performance reviews in June, various of these staffers were asked whether they would be willing to relocate and some of those who declined were let go, the person familiar with the matter said. Binance didn’t respond to a request for comment on any of the departures or information."
Olga Kharif reports that Crypto Trading Volume Dropped in Second Quarter to Lowest Since 2019:
"Volume on so-called centralized exchanges rose 16.4% to $575 billion in June, the first increase in three months, according to a report from researcher CCData. Overall, trading volume fell 40% to $1.7 trillion from the first quarter, and was down 62% compared with the year-earlier period, the researcher said.
Meanwhile, Binance’s market share of non-derivatives trading volume declined for the fourth consecutive month, dropping 1.4% to 42% in June. The biggest crypto platform’s market share fell the most among centralized exchanges, and it registered the lowest market share since August 2022."
The graph of trading volume is brutal.
Muyao Shen reports that Crypto Derivatives Show Growing Pessimism Around Binance’s Token:
"The negative sentiment is most reflected on the perpetual swap market, a type of futures contract used in crypto markets that do not expire. Data from Coinglass shows that the open interest-weighted funding rate turned negative this weekend, meaning that speculators betting on a price decline are willing to pay those counting on gains to keep their bearish positions on BNB open.
“Typically, negative funding rates indicate heavy short positioning. In this case, it seems traders are betting on a decline in BNB prices,” said Darius Tabatabai, co-founder of decentralized exchange Vertex Protocol."
Yueqi Yang reports that Binance’s Lead in Offshore Market Share Shrinks as Rivals Gain Ground:
"The market share of Binance has dropped to 73% in mid July from 90% at the beginning of the year, based on spot trading volume data from Kaiko. Meanwhile, OKX’s share rose to 11%, nearly doubled from January. Huobi and Bybit have also increased their market share, now representing 9% and 7%, respectively, of global spot crypto trading volume."
Muyao Shen's Binance Executive Departures Gather Pace With Kostarev, Smerkis Leaving reports on the rats leaving:
"Two Binance executives overseeing regions including Eastern Europe and Russia have left the world’s largest crypto exchange, which has been rapidly losing senior managers as regulators in the US and elsewhere crack down on it.
Gleb Kostarev, regional head of Eastern Europe, Commonwealth of Independent States, Turkey, Australia and New Zealand; and Vladimir Smerkis, a general manager for the CIS region, announced their departures on Facebook.
...
Helen Hai, who most recently ran Binance’s global fiat business, has also left, the Wall Street Journal reported Wednesday, citing people familiar with the matter."
Olga Kharif reports that Binance US CEO Departs as Crypto Platform Cuts Third of Staff:
"Binance.US Chief Executive Officer Brian Shroder left the company and has been replaced on an interim basis by Chief Legal Officer Norman Reed, moves that coincided with another round of job cuts at the struggling crypto platform.
The company controlled by embattled digital entrepreneur Changpeng “CZ” Zhao is eliminating about one third of its workforce, or more than 100 positions, according to a spokesperson, as a regulatory crackdown erodes its business."
Olga Kharif reports that Binance’s Spot Crypto Market Share Shrinks for a Seventh Consecutive Month:
"The trading platform’s spot market share dropped to 34.3% in September from 38.5% the previous month, according to data compiled by researcher CCData. It was 55.2% in January. In derivatives, its market share fell to 51.5% from 53.5% in August, and 62.6% in January."
In Binance Founder’s $1 Billion Plan to Save Crypto Quietly Fizzled Out Emily Nicolle reports that:
"Zhao’s plan: to pull together some of the industry’s biggest names and raise at least $1 billion to finance promising startups which, due to forces outside their own control, were strapped for cash. Time was of the essence. “The industry needs saving now, not in 2023,” Zhao said in a Nov. 24 Bloomberg Television interview.
Not much has come of Zhao’s grand plan to rescue crypto. The Industry Recovery Initiative, as it was called, has deployed less than $30 million since its inception, a Bloomberg News analysis of public digital-asset wallets linked to the project indicates. Only one of nine named participants has invested all the funds it committed. The cryptoasset sector, meanwhile, remains starved for cash and companies are cutting jobs to stay afloat."
Matt Levine is skeptical:
"At the time, I found this plan puzzling, because I had never heard of a crypto project that was “otherwise strong, but in a liquidity crisis.” I asked: “Has there ever been a pure liquidity problem at a crypto firm?” Crypto project that got hacked and lost all its money? Sure. Crypto project whose founders ran off with all the money? Sure. Crypto project whose money was all in magic beans that turned out to be worthless? Sure.
But crypto project that had lots of good long-term assets that it could not sell or finance quickly, and that was therefore driven into bankruptcy despite having lots of value? I mean? ... I just kind of do not think that that is how crypto works. Compared to traditional financial assets, crypto is unusually good at being liquid (it all trades on computers around the clock) but unusually bad at being solvent (it often turns out to be worthless). A fund set up to solve liquidity problems in crypto won’t end up doing much."
Emily Nicolle reports another rat has left the ship in Binance France Director Exits in Latest Senior Departure at Crypto Exchange:
"Binance’s Stéphanie Cabossioras has stepped down from her position as managing director at the crypto exchange’s French unit, adding her name to the list of senior leaders to have departed the company this year.
Cabossioras, who joined Binance in April last year as head of legal in the region, acted as the firm’s general manager in the country. She was previously deputy general counsel at France’s markets regulator Autorité des Marchés Financiers, arriving at Binance when the company announced it was establishing its European hub in Paris."
Sandali Handagama reports that Binance.US Halts Direct Dollar Withdrawals:
"Binance.US users can no longer withdraw dollars directly from the platform after the exchange updated its terms of use on Monday.
"In the event that customers wish to withdraw U.S. dollar funds from their account, they may do so by converting U.S. dollar funds to stablecoin or other digital assets, which can subsequently be withdrawn," the email said."
Olga Kharif reports that Binance Stops Offering Crypto Visa Debit Card in Europe While Partners Step Back:
"Binance is no longer offering its Visa debit card in Europe, the latest retrenchment by the world’s largest cryptocurrency exchange.
Existing holders of the European Economic Area card will be able to use them until Dec. 20, Binance said in a blog on its support website on Friday. About 1% of Binance’s users are impacted by this change, according to a Binance spokesperson.
...
Mastercard Inc. and Visa Inc. have been stepping back from their card partnerships with Binance, which is facing growing scrutiny from US regulators. Visa stopped issuing new co-branded cards with Binance in Europe as of July. Visa didn’t immediately return a request for comment."
The Economist asks Will Binance come over to the light side?:
"Now, with ftx out of the picture and sbf on trial, charged with various kinds of fraud, which he denies, cz looks a lot like the last man standing in crypto. Binance utterly dominates crypto trading (see chart). A whopping 40-50% of it by volume takes place on the platform.
...
The test for the firm now will be in Europe. America is cracking down on crypto, and is unlikely to pass new laws soon. By contrast, European legislators have written a “Markets in Crypto-Assets” or “mica” framework, which entered into force in June. Exchanges can keep operating under existing licences until 2026, unless refused under mica, which will require strong policies against money-laundering and terrorist financing.
...
A crypto exchange can no longer argue that it cannot comply with national rules because they do not exist. Failing to meet Europe’s standards would reveal that Binance does not want, or is unable, to follow even clear laws."
Chris Strohm, Allyson Versprille, and Olga Kharif report that US Is Seeking More than $4 Billion From Binance to End Case:
"The US Justice Department is seeking more than $4 billion from Binance Holdings Ltd. as part of a proposed resolution of a years-long investigation into the world’s largest cryptocurrency exchange.
Negotiations between the Justice Department and Binance include the possibility that its founder Changpeng Zhao would face criminal charges in the US under an agreement to resolve the probe into alleged money laundering, bank fraud and sanctions violations, according to people familiar with the discussions."
It looks like Binance's time in the barrel has come to an end. Chris Strohm, Matt Day, Ava Benny-Morrison, and Allyson Versprille report that Binance and CEO Plead Guilty, Agree to Pay Billions in Fines:
"Binance Holdings Ltd. and its Chief Executive Officer Changpeng Zhao pleaded guilty to criminal charges for anti-money laundering and US sanctions violations, including allowing transactions with Hamas and other terrorist groups, under a sweeping deal with the Justice department designed to keep the company operating.
Binance agreed to plead guilty to criminal charges and pay over $4 billion in penalties. Zhao, who agreed to step down and pay a $50 million fine as part of the settlement, appeared in court in Seattle Tuesday to plead guilty. The deal, which includes the Treasury Department and the Commodity Futures Trading Commission, ends a years-long investigation into the cryptocurrency exchange.
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Zhao faces a maximum sentence of 10 years and fines up to $500,000, plus any profits he made from the alleged scheme. His lawyers said in court on Tuesday that his sentencing will be delayed by 6 months. Zhao’s agreement includes a waiver of his right to appeal, provided that his sentence doesn’t exceed 18 months, judge Tsuchida said during the plea hearing."
Molly White points out that:
"Notably, the SEC lawsuit was not among those settled."
The DoJ's press release has details.
In Inside France’s courtship of Binance, Akila Quinio recounts how CZ fooled the French government:
"It all started when Changpeng “CZ” Zhao met Macron at the Elysée palace in November 2021. That same month, Binance said it would invest €100mn into France’s burgeoning crypto scene — a pledge dubbed “objective moon” by its founder. The courtship culminated with France’s Autorité des Marchés Financiers, the financial watchdog, granting the exchange regulatory approval last May — a move that contrasted sharply with other national regulatory stances.
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One may expect recent events to have rocked the nascent relationship. But the French government appears to have remained under Binance’s charm."
The Nigerian government has detained two Binance executives complaining that Binance's pair between the naira and USDT was driving down the value of the naira. Cryptocurrencies are popular in Nigeria because the currency has been devalued. Matt Levine writes about it:
"For one thing, it is rude to the government to say “the institutions and currency here are bad so I’m putting my money in Bitcoin.” For another thing, if the government wants to seize your money or whatever, it will be annoyed if you make that difficult: You may see “weak financial and legal institutions,” but the government sees “legitimate enforcement of our laws against improper currency transactions.” Also, though, if everyone decides to get out of the local banks and into Bitcoin, that is going to create problems; it will drive down the local currency and make the banks weaker."
And he notes that, in practice, using cryptocurrency involves using exchanges such as Binance:
"In some broad philosophical sense, the appeal of crypto is that the government can’t just ask a bank for your account information and then seize your account. But in a practical sense that’s not always entirely true."
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